Critical Thinking Exercise 19-1 - Law Firm 2

Able owns a landscaping business that has been struggling financially for the past year. On February 1, Able's friend Carl loaned Able's business $5,000 (taking a negotiable promissory note) to help Able make it through the winter until business picked up in the spring. In March, Able repaid Carl $3,000 of the loan. This essentially wiped out all of Able's cash and when a couple of planned contracts failed to come through, Able filed a voluntary petition for Chapter 7 bankruptcy on April 12 (assume Able did not meet the means test so that his petition was not converted to Chapter 13). Able has four major claims against his estate. Johnson Garden Supplies is owed $5,000 for landscaping supplies Able bought on credit (and for which Johnson has a secured interest); Able still owes his friend Carl $2,000 on the February loan; Harold, Able's only employee, is owed wages of $1,000 total for March and April; and Able owes $2,000 on a credit card. In addition, Smith, an accountant retained by the bankruptcy trustee, is owed $1,000, and Able owes the IRS $2,000 in taxes. The trustee has liquidated Able's assets, including the assets of the landscaping business, and deducted all appropriate exemptions. So far, Able's nonexempt estate totals $5,000, which includes $2,000 the trustee received for the landscaping supplies purchased from Johnson Garden Supplies.

1. Can the trustee obtain from Carl the $3,000 Able paid to him in March? If so, on what basis?
2. What amount will each creditor receive from Able's nonexempt estate, in order of priority, and why?